Value Added: Cooking up a business model

Unless you are a gifted performer or you win the lottery, there are two basic ways to create wealth. The first is to live beneath your means, save like mad and invest wisely.

The other is to build a business. Build it, create value, reinvest in it and one day you may own a valuable asset.

I am not an entrepreneur, so I beaver away at the first, living frugally and saving in stocks and bonds. (I still believe. What else is there?)

Denise and Bill Medved have followed the second route. They have built the Metropolitan Cooking & Entertaining Show, a consumer trade show that runs this weekend in the Washington Convention Center, into a valuable asset that they may sell for a big payday.

The “show” is an umbrella company for three shows in Washington, Houston and Atlanta. The three events gross $3.2 million and produce a net profit in the $300,000 range — after salaries and health care for eight employees, office space in Annandale, back-office expenses and a smidgen of debt.

Denise and Bill each take around $50,000 in salary, plowing everything back into the business, hoping to defer their payoff until they sell the company — which may be sooner than you think.

“If we were going to sell this right now,” said hard-charging Denise, “we could probably get $4 to $5 million.”

I knew these trade shows could be lucrative — if you do them right. Sheldon Adelson, ranked eighth by Forbes with $21.5 billion, built his fortune from the 1995 sale of the computer trade show Comdex, which he sold to a Japanese company for a personal profit reportedly at $500 million.

The Medveds appear to be doing it right. They have one offer, predicated on financing, that could earn them a personal takeaway of at least $2 million pre-tax.

Denise, 50, and Bill, 56, started the show in 2006 after Denise finished bouncing around the trade-show business and was intent on pursuing her passion for cooking. She wrote a book called “The Tiny Kitchen,” then used her experience in trade-show circles to start the local exhibition.

They own a majority of the show, though they have two investors with significant stakes.

The Medveds’ revenue comes from four primary sources: $1 million worth of tickets at prices ranging from $24.50 to $500 from 25,000 visitors; $500,000 from 360 exhibitors that rent booths to sell everything from kitchen knives to hot sauce; $100,000 in sponsorships; and about $65,000 from book sales. Total is about $1.7 million.

The biggest expense is the six-figure appearance fees paid to cooking stars. This year, Paula Deen, Giada DeLaurentiis and Jacques Pepin will each perform in Washington. The Medveds say those names draw in customers, who spend $2 million buying cheese, pots, pans and much more.

Other costs include $70,000 to rent 80,000 square feet of space in the convention center for five days (three to set up, two for the show); $90,000 for a stage; $100,000 for advertising; and then there is a general contractor who decorates the building.

The Washington show is by far the most lucrative of the three city shows that the Medveds produce, netting around $800,000 after costs.

“The D.C. show is throwing off some nice cash,” said Denise, a self-starter who once ran her own holiday gift-wrapping kiosk in Tysons Corner Center.

The Washington show helps cover overhead costs for employees and space at the Medveds’ Annandale headquarters, where salespeople mine a 6,000-name database for potential exhibitors.

The cash is also needed for planned expansion to Dallas, Denver and Minneapolis. The Medveds are betting that those cities are big enough and wealthy enough to support a cooking show.

Denise may love cooking, but she and Bill (she is sales, he is operations) are unsentimental when it comes to running the show — which is their only asset outside their home.

They adhere to 10 commandments about how to build equity. The laws include increasing revenue and earnings 25 percent a year, diversifying revenue streams, constantly innovating and, my favorite, getting rid of what doesn’t work.

“We don’t take stupid risks,” said Denise, who closed a cooking show in Palm Beach, Fla., when it failed to meet expectations. (Lesson learned: Don’t take on partners who don’t put up money.)

“We take calculated risks,” Denise said. “We aren’t afraid to scrap underperforming initiatives. We cut our losses. I am looking at every single aspect of the business as a [profit-and-loss statement]. I see a kitchen and I look at it and say, ‘We lose money on it, but we can’t cut it because it’s necessary to execute the show.’ ”

When a flashy but labor-intensive interactive cooking exhibition in Washington didn’t make enough cash to justify the work, they replaced it with a profitable food-and-wine-pairing session.

When a beer, wine and spirits pavilion surprised them with a $20,000 bill for labor, the next year they did their homework ahead of time, turning it into one of their most successful ventures.

When a cooking area for children only broke even, they turned the real estate into a lucrative book-signing pavilion.

They’ve also tweaked prices for exhibitors. The companies that sell $1,500 packages of pots and pans pay more for exhibit space than someone who sells $5 jars of pickles. Businesses that want a corner booth pay a little more, too.

The hardest part is drawing customers into the show. That is what makes or breaks its success. That keeps the exhibitors coming. And it keeps the asset growing.

To reel in those consumers, the Medveds rely on a combination based on cooking stars, the right mix of exhibitors and a database filled with the names of 120,000 foodies.

“We need to please three groups,” Denise said. “The key thing is we are building value.”